JALCO Holdings Inc.

Pachinko hall operators, the Group's major customers, are required to file notifications with and obtain approval from the Public Safety Commission of each prefecture under the Adult Entertainment Business Law (Fueiho), and industry associations also impose voluntary regulations. If tightening of legal regulations or implementation of new voluntary regulations causes a sudden change in capital expenditure trends among pachinko halls, this could have a significant impact on the Group's business performance. The Group closely monitors regulatory developments and strives to avoid occurrence of such risks and respond appropriately.

In conducting its money lending business (including the Social Lending Business), the Group is subject to laws and regulations such as the Money Lending Business Act and the Financial Instruments and Exchange Act, as well as the voluntary regulations of the Japan Financial Services Association. If the Group's response to legal amendments is insufficient, or if it is cited for violations of laws and regulations by regulatory authorities and receives administrative sanctions, this could damage its credibility and adversely affect its business activities, financial position, and operating results. The Group strives to respond in a timely manner to regulatory changes through strengthening its company-wide internal control system and thoroughly instilling compliance awareness.

If leading business companies, including pachinko hall operators, are affected by deterioration in the economic environment in Japan and worldwide, resulting in changes in market structure or a contraction in demand, this could have a significant impact on the Group's business performance. Because customer concentration in a specific industry is high, deterioration in the business environment of the industry as a whole poses a risk of directly leading to a decline in revenue. The Group strives to avoid the occurrence of such risks and to respond appropriately when they arise.

In acquiring real estate for leasing, competition with other companies arises over sale prices and transaction terms. If a competitor acquires property on terms that exceed the Group's acceptable range, the Group may be unable to acquire the real estate for leasing, which could have a significant impact on its business performance. Intensifying competition in the real estate market is a factor that impedes the expansion of the Group's revenue base.

The Group plans to raise funds for real estate investment through banks, credit unions, corporate bonds, and other means, and the balance of interest-bearing debt may increase further as business expands. In the event of a sharp rise in interest rates, procurement costs would increase, while rent increases under lease agreements may not keep pace with the rise in market interest rates, posing a risk of pressure on earnings. The Group strives for stable fundraising through diversification of funding methods, but fundraising may become difficult due to changes in economic conditions.

The Group conducts a money lending business primarily targeting business companies, including pachinko hall operators, and since some loan receivables are long-term, unforeseen circumstances such as delinquency or bankruptcy may arise due to economic fluctuations or other causes. If bad debts occur, this would adversely affect the Group's financial position and operating results. The Group responds through strict transaction screening at the time of new contracts and thorough credit management, but if it is unable to prevent fraud or other misconduct by business partners in advance, risks of credit concerns and unforeseen bad debts may materialize.

The Group has a high proportion of net sales concentrated in specific business partners, and depending on trends at such business partners, this could adversely affect the Group's business, financial position, and operating results. While the Group aims to strengthen relationships with business partners and maintain highly stable transactions, it is also working to expand and secure new business partners to shift away from this state of dependence; however, the risk continues as long as this dependence is not resolved.

In the Real Estate Business, real estate for sale that has been acquired or developed may become difficult to sell due to deterioration in real estate market conditions, or the sale price may fall below book value. In such cases, losses would arise from write-downs of the book value of inventory assets, adversely affecting the Group's business and financial position.

The Group's management depends on the leadership of Representative Director and President Junichi Tanabe and other key personnel, and if the current management team is unable to continue managing the business, this could have a significant impact on the Group's financial position and operating results. In addition, as of the end of the fiscal year under review, the organization is small in scale, with 3 directors, 3 auditors, and 21 employees; if personnel leave the company or are unable to work due to sudden illness or other circumstances, causing disruption to business operations, or if business expansion outpaces the expansion of the internal control system, this could disrupt the internal control system. The Group is working to strengthen recruitment and development of personnel as well as its internal control system.

The Group handles confidential information and personal information, and if an information leak occurs, this could adversely affect the Group's business and performance through claims for damages, administrative sanctions, and loss of trust among customers and business partners. In addition, in businesses such as the Social Lending Business, the Group outsources the development, operation, and maintenance of its transaction systems to external vendors, and any change in the relationship with important outsourcing partners could also adversely affect its business. The Group strives to respond to these risks by establishing an information management system and thoroughly instilling compliance awareness.